The British electronic artist, who won plaudits and the Mercury Music Prize for his second album Overgrown last year, was one of the biggest artists on the bill for the January 27 event at Silo Park.
But Blake's Best New Artist nomination for the Los Angeles-based Grammy Awards, which clashes with Laneway, means he won't be able to perform.
He has been replaced by two artists: American singer-songwriter Cat Power, who performed a two-show tour of New Zealand last February, and Australian electronic duo The Presets, who last played here at Rhythm & Vines in 2012.
Blake is the second artist to pull out of the festival, which prides itself on showcasing indie and alternative acts on the rise, because of the Grammys clash.
Kiwi pop star Lorde last month announced she was also choosing to bypass the event when she received four Grammy nominations.
She's holding a make-up show two nights later at the same venue, with free tickets available to Laneway ticketholders until January 8.
In a statement, Laneway organisers said this wasn't possible with Blake, who performed a sold out and raved-about show at Auckland's Town Hall in August.
Co-promoter Mark Kneebone said festival bosses were "totally gutted" but understood and supported Blake's decision.
"We appreciate this is a huge achievement for James Blake and his career. Due to James Blake's tight tour schedule it is not possible for us to schedule replacement dates," Kneebone said.
Refunds are available until 5pm on January 16 to anyone wanting them.
It's not the only music festival to have problems with a headlining act after Britpop act Blur pulled out of next Friday's Big Day Out, citing problems with organisers. They were replaced by three bands: Deftones, Beady Eye and The Hives.
Artists confirmed for Laneway include Chvrches, Danny Brown, Frightened Rabbit, Earl Sweatshirt, Kurt Vile, Jamie xx, Run the Jewels, Savages, Unknown Mortal Orchestra and Haim.
Laneway
Where: Silo Park, Wynyard Quarter, Auckland
When: Monday, January 27 (Auckland Anniversary Day)
